Government urged to protect defence industry following collapse of BAE merger

00:01, 11 October 2012

ByManchester Evening News

The government has been urged to take steps to protect Britain's defence industry in the wake of the scrapped £28bn merger between BAE Systems and French rival EADS. The deal, which collapsed yesterday, would have created a defence giant with combined sales of £60bn and more than 52,000 UK employees.

The government has been urged to take steps to protect Britain's defence industry in the wake of the scrapped £28bn merger between BAE Systems and French rival EADS.

The deal, which collapsed yesterday, would have created a defence giant with combined sales of £60bn and more than 52,000 UK employees.

Unions believed the link-up would have created a strong company to guarantee jobs in the long term.

BAE's north west workforce stands at 15,000 and for every direct job at the company, a further four are supported in the supply chain, many of which are within Greater Manchester.

That is just a fraction of what it was just five years ago, with defence industry cuts forcing BAE to scale back its presence in the region significantly.

The firm suffered a 14 per cent fall in annual sales as military spending in the US and UK was slashed, which left 2011 profits seven per cent lower at £2bn.

Its operation in Chadderton, Oldham, shut down in March and its site in Woodford, Cheshire, closed last year. Its remaining north west sites are in Samlesbury and Warton, Lancashire, and Radway Green, near Crewe.

The tie-up would have improved BAE's exposure to commercial markets - as EADS is an Airbus aircraft manufacturer - in a climate when public defence spending is declining.

BAE chief executive Ian King said the British business remained "strong and financially robust" and added: "We are obviously disappointed that we were unable to reach an acceptable agreement with our various government stakeholders."

The Unite union represents 30,000 skilled workers across the two firms and urged the government to strengthen its "golden share" in BAE by taking an active stake in the company to safeguard British jobs and boost manufacturing.

National officer Ian Waddell said: "The highly skilled workforces of both companies are the beating heart of British manufacturing.

"A merger, with a jobs guarantee, would have created a strong new company that could have protected the UK's long-term interests.

"The UK government now needs to strengthen its golden share and send a powerful message that it backs British manufacturing and BAE Systems. Short-termism cannot be allowed to govern BAE's future."

Germany is understood to have dealt the final blow to the troubled deal. France has a direct stake in EADS, while German influence is held through a 22 per cent stake owned by car maker and industrial group Daimler. Ms Merkel is thought to have insisted on a nine per cent stake in the enlarged group. It is thought America had concerns over sensitive military assets transferring from British ownership to a European business.

As well as the political wrangling, BAE's biggest shareholder Invesco Perpetual said it did not understand the strategic logic of the merger.

Dr Brian Sloan, chief economist at Greater Manchester Chamber of Commerce, said: "Clearly there was a feeling amongst executives in both parties that a merger would be beneficial to the future aspirations of both businesses, though there were objections from major shareholders to the merger.

"How a merged business would have developed its strategy and how this would have impacted on supply chains and therefore the north west economy is completely unknown. "Only time will tell if this outcome has been the right one or detrimental to the region’s economy."

Baron Frankal, director of economic strategy at New Economy, said: “BAE Systems employs around 15,000 people in Lancashire and having them nearby is of great advantage to Manchester.

"Their presence supports a range of activity in Greater Manchester’s supply chain, particularly in the advanced manufacturing sector which currently employs 38,000 people in the region and generates around £1.9bn in Gross Value Added per annum.

“Of course, their proximity to Manchester also has the added benefits of access to the city’s academic institutes such as the University of Manchester which has a reputation for academic excellence in materials science and aeronautical and manufacturing engineering.”

Jim Moohan, of the GMB union, said: "GMB now hopes that BAE Systems will focus on what they do very successfully and the company must look to world markets for opportunities that will provide employment for their highly skilled workforce across the UK."

A UK Government spokesman said: "The two companies will remain as successful independent companies, each with a significant presence in the UK. The government has always been clear that it could see the commercial logic of this deal but that it would only ever work if it met the interests of all the parties involved."

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